MP presents deficit Budget

The Madhya Pradesh government will adopt the value-added tax (VAT) from April 1. The finance minister, Raghavji, announced this in the assembly today while presenting the Rs 48.55-crore deficit Budget for 2006-07, which contained several fresh taxes.

The adoption of VAT will be in accordance with the recommendations of the empowered committee on VAT, but foodgrains will be exempted from tax for a year, resulting in a revenue loss of Rs 40 crore.

"At present the tax is 1 per cent on foodgrains but we have decided to bring it down to zero for a year," the minister said.

The revenue deficit was brought down to Rs 25.49 crore, against Rs 1,100 crore of the previous year. The minister said for the first time in history the state had presented a revenue surplus budget of Rs 970.22 crore for the next fiscal.

"This money will be used for development and infrastructure," Raghavji said.

Recommending fresh taxes, the finance minister increased entry tax on tobacco products, including cigar, cheroots, cigarettes, and tobacco cigarillo, from 8 per cent to 10 per cent to turn in Rs 4 crore.

After the introduction of VAT, the existing commercial tax of 23 per cent on tobacco-mixed pan masala and gutka will be reduced to 12.5 per cent. To adjust it, the finance minister increased entry tax on the commodity from 1 per cent to 12.5 per cent. "This will nullify the effect," said the minister.

To encourage inter-state sales of cement (MP is a leading cement-producing state), the finance minister imposed 5 per cent entry tax on raw materials (excluding limestone) to be used in manufacturing cement. But the central sales tax on cement has been reduced from 4 per cent to 2 per cent.

"It will generate Rs 25 crore," Raghavji said. Further, mortgage documents pertaining to bank loans by self-help groups of up to Rs 10 lakh will be exempted from stamp duty. Also, mortgage documents for farm loans for a similar amount will be exempted from stamp duty, regardless of the amount of landholding.

"But the documents holding a value of more than Rs 10 lakh will attract 1 per cent stamp duty," the minister said. Raghavji said, "Mergers and acquisitions of companies face difficulties due to high stamp duty on transfers of assets, plant, and machinery. We propose to reduce it to 1 per cent from 8 per cent of the market value. But this reduction has been capped at Rs 10 crore in the case of transfers of plant, machinery and movable property on individual documents. There will be no revenue loss to the state government."

On tourism, he raised the limit of luxury tax exemption for hotels, from Rs 60 per day per room to Rs 500 per day per room. "We will levy 5 per cent tax on rooms with a tariff from Rs 500 to Rs 1,000, and 10 per cent on Rs 1000 and above," Raghavji said. He also raised the luxury tax exemption limit on new hotels making an investment of Rs 1 crore over five years to eight years.

Raghavji said, "We were hesitating on VAT because the central government had no clear policy on removing central sales tax. It has been decided that the central sales tax will be phased out." and states will be compensated accordingly"